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Editors' Summary

  • Economics


11941-00b_Summary-rev.qxd vii Editors’ Summary THE BROOKINGS PANEL ON ECONOMIC ACTIVITY held its eighty- eighth conference in Washington, D.C., on September 10 and 11, 2009. All of the papers were related in some way to the remarkable macro- economic developments of the past two years: the papers considered the zero lower bound on nominal interest rates, consumer financial regulation, unconventional monetary policy, the macroeconomic consequences of fis- cal stimulus, and monetary and fiscal policy in the Great Depression. This issue of the Brookings Papers on Economic Activity presents the papers from the conference, comments by the formal discussants, and summaries of the discussions of the papers by conference participants. IN THE FIRST PAPER, John Williams investigates the implications of the fact that monetary policy cannot push nominal interest rates below zero. An earlier literature studied this issue in light of the Bank of Japan’s experience with near-zero rates beginning in the mid-1990s and the Federal Reserve’s experience with very low rates in 2003 and 2004. That literature concluded that although the zero lower bound was likely to be a binding constraint relatively frequently, its average economic cost was likely to be small. Williams reexamines this conclusion in light of the recent crisis, during which most major central banks pushed inter- est rates close to zero. Williams’s first finding is that the zero lower bound is imposing very large costs in the current episode. He reports that although the downturn would have been almost as severe in the absence of the zero bound, the recovery would have been much faster. He estimates that an uncon- strained Federal Reserve would have cut its federal funds rate target by about an additional 400 basis points, and that those cuts would have raised output over the next four years by a cumulative $1.8 trillion. More- 11941-00b_Summary-rev.qxd 1/26/10 11:09 AM Page vii over, this increased output would have come with lit

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